Bases Options

Let's talk about options. Few people to trade and less of what they are. One option is the act of buying time - time to do something. If I buy an option, I have finished the first part of the agreement I have with the other party.

If I want to buy 1000 acres of land, may take some time for me to get the money together or arrange a loan. So, give the owner of the store in March. The deposit has the opportunity to purchase that land. It should say something that I have the right to buy land for $ 1,000 acres next 30 days. If after 30 days, do not buy land, the current owner to keep my money and then can sell the land to someone else.

Now, this is the appropriateness of the current owner in March to sell land to anyone during the time window. Let's say I bought the option for a plot of land, and someone discovers oil in that country. I could sell my option to purchase the land for many times what I bought.

The same applies to stock options. You can buy the "right", but is not obliged to buy shares. This means that you have purchased the right to buy the stock at a specified price during a period, but you do not really buy the shares.

Why would anyone buy the right to buy someone else's actions in a given society? Stock of any company is always higher or lower prices. If I bought a call option and stock prices go up, I make money. If the price of a stock goes down and I bought Puts, I would make money. In both cases, I could sell it to someone more than I bought it for. For example, say that Apple stock has sold for $ 300 a hand, and I bought call options for the value 300 and the month of expiration was three months from now. So tomorrow morning, Apple announced a brand new iPhone, which got good reviews from everyone who tried it. The price of a share of stock could rise to $ 350

When you buy an option you buy control of 100 shares, then in this case I paid $ 30 per share or 30 times 100, so the option price was $ 3000.

Now, if the stock rose $ 50, the price would probably be a choice for $ 75. I could sell what I own Call option for $ 7,500. This is a profit of $ 4,500. You also have the trading costs of buying and selling. So let's say I made $ 4,300. It would be a great day of trading - not a normal day.

Day is like that, that's why people talk about buying and selling options. The truth is that from 60 to 70 percent of people who trade options lose money. Now, if I bought a call option and the price dropped, I did not do anything, but the value of my solution would decrease. So the best I could lose is the price I paid for the option, the amount I could earn is unlimited.

Investigations and trading on paper before you go shopping for real!